WHAT IS A CONTRACT AND WHEN DO YOU HAVE ONE?

Contracts are promises that the law will enforce.
The law provides remedies if a promise is breached or recognizes the performance of a promise as a duty. Contracts arise when a duty does or may come into existence, because of a promise made by one of the parties. To be legally binding as a contract, a promise must be exchanged for adequate consideration. Adequate consideration is a benefit or detriment which a party receives which reasonably and fairly induces them to make the promise/contract . For example, promises that are purely gifts are not considered enforceable because the personal satisfaction the grantor of the promise may receive from the act of giving is normally not considered adequate consideration. Certain promises that are not considered contracts may, in limited circumstances, be enforced if one party has relied to his detriment on the assurances of the other party.

Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law principally includes the terms of the agreement between the parties who are exchanging promises. This private law may override many of the rules otherwise established by state law. Statutory law may require some contracts be put in writing and executed with particular formalities. Otherwise, the parties may enter into a binding agreement without signing a formal written document.

Most of the principles of the common law of contracts are outlined in the Restatement Second of The Law of Contracts published by the American Law Institute. The Uniform Commercial Code, whose original Articles have been adopted in nearly every state, including Michigan, represents a body of statutory law that governs important categories of contracts. The main Articles that deal with the law of contracts are Article 1 (General Provisions) and Article 2 (Sales). Sections of Article 9 (Secured Transactions) governs contracts assigning the rights to payment in security interest agreements. Contracts related to particular activities or business sectors may be highly regulated by other state and/or federal law.

In 1988, the United States joined the United Nations Convention on Contracts for the International Sale of Goods which now governs contracts within its scope. At Bodwin & Associates, P.C., PC we can answer your contracts questions and can offer advice that might prevent you from making a costly mistake.

GENERAL TIPS FOR ALL TYPES OF CONTRACTS

If you have any questions about entering into a contract you should consult an attorney. It costs very little to have an attorney review most contracts and it may end up saving you a whole lot of money and emotional distress down the road.
But if you do enter into a contract on your own, the following are some general tips for all types of contracts.

Write it down.
All contracts should take the form of a written document signed by both parties. You do not have to hire an attorney to create a written contract. If you reach an agreement over the phone or in a meeting, write the agreement as soon as possible and have the other party sign the written memorandum. If you are making a written offer, you may want to make your offer in the form of a letter, with a space at the end for the offeree to indicate acceptance by signing.

Make sure you are comfortable with your obligations.
If a term - for example, a deadline - makes you uneasy, make a counter-offer that substitutes a term with which you are more comfortable. Do not assume that the other party will excuse you from strict compliance and do not rely on the other party's oral assurances that it will not insist on strict compliance.

Remember Murphy's Law.
Before you sign a contract, consider what could go wrong or what could make the performance of your obligations difficult or expensive. If the actual performance is more difficult or expensive than you anticipated, that is not a valid excuse for not performing. Enter into a contract only if you believe that you can meet your obligations.

Don't leave anything out.
Accurately cover all aspects of your understanding with the other party. If the other party wrote the agreement based on an oral understanding reached earlier, make certain that the written terms match the terms of your oral agreement. Don't leave points out of the written document, even if the other party says, "We don't need to put that in writing."

Cover all options.
Cover all options, consequences, and possibilities. You should not fail to address an issue because it is "sensitive." Deal with the sensitive issue during the negotiations. Make sure that your contract includes a merger clause (which says that the written contract contains all of the contract terms) to avoid disputes about whether proposals made during negotiations but not included in the final written agreement are part of your contract.

Don't use unclear language or try to sound like a lawyer.
If you don't understand exactly what the other party is expecting you to do, don't try to camouflage the lack of understanding by using vague language. Vague language leads to misunderstandings, disputes, and lawsuits. Use simple language that accurately expresses your agreement with the other party. Don't try to sound like a lawyer, and don't complicate things unnecessarily.

Define any ambiguous terms.
There's a classic contracts case in which one party contracted to sell chickens to the other party. The seller thought "chicken" meant chicken of any age, including old and tough chickens. The buyer assumed "chicken" meant tender young chickens suitable for frying. The seller shipped old chickens, and the buyer screamed "breach". To avoid such misunderstandings, define any terms that may be ambiguous.

Be careful using "terms of art."
Terms of art are words with specific meaning in the law. "Assignment," for example, has a number of meanings in the English language. Use "assignment" in your contracts when you mean transfer of ownership. Don't use the word in its other meanings or you will create confusion.

Use Terms Consistently.
When you write contracts, you are creating your own "law." Legal writing is not creative writing. Don't use "leasing fee" in one paragraph, "license fee" in a second paragraph, and "use fee" in a third paragraph. Pick one term and stay with it throughout the contract.

Think Prevention, Not Cure.
If you have questions or are uneasy about a deal, the time to consult with an attorney is before, not after, you enter into an agreement. It is much easier to ward off potential problems through planning, forethought, and the use of correct language in a contract, rather than try to correct a problem or argue about it later. Planning is cheap. Lawsuits are expensive!